Damian Sassower, head of Emerging Markets Fixed Income Strategy at Bloomberg Intelligence, recently visited the Dominican Republic. He was invited to the 2023 Annual Investors Conference, organized by Xolver, a firm led by economist Nassim José Alemany, as managing partner, along with a multidisciplinary team. The newspaper elDinero was the only media that interviewed this globally prestigious expert, thanks to Labya, a consulting firm chaired by Yaqui Núñez del Risco Mejía.
One of Sassower’s fields of experience, after passing through Citigroup, Lehman Brothers and Goldman Sachs, is sovereign and corporate credit. He works very closely with fixed income, which is precisely the financing mechanism through which the Dominican Republic has accessed international financial markets. In fact, external debt in bonds closed August at US$28,745 million, equivalent to 52.7% of the total public debt.
One thing is certain: the Dominican Republic is in a comfortable position, registering one of the highest growth rates in the region and controlling inflation, which is an indication, he says, that the monetary authorities are doing well. This panorama of stability and growth is what the Bloomberg expert connects with the enthusiasm of foreign investors.
The institutional strength of the country stands out, which will remain intact regarding the election process that will take place next year. “Foreign investors are excited about this, they have been for a long time. Inflation has finally come down. The Central Bank seems to be doing the right thing,” he maintains.
As a fundamental variable, Sassower highlights the diversification process that the Dominican economy has been experiencing when compared to its peers. He states that the Dominican Republic has manufacturing, agriculture, tourism and a diaspora that sends remittances that represent about 10% of the gross domestic product (GDP).
“There are two things that move the markets, two things that are most important for any investor today. “It is the US dollar and where it will be next week or next month,” he points out, while identifying the impact that US interest rates have.
Likewise, he recognizes that internationally there is a difficult outlook to predict, since no official in charge of monetary policy, in the case of the United States, has any idea of where inflation and economic growth are heading in the next three months. He expresses that Federal Reserve officials simply cannot predict what will happen in the coming months.
Does that mean that inflation may not be as high as expected and will most likely have to rise again in November? He claims that could happen too. He suggests looking at what has happened in emerging markets such as Brazil, Chile, Hungary and Poland, where central banks have begun to cut their monetary policy rates.
He maintains that if he were talking about the two big macroeconomic factors that matter most to investors, one is the dollar and the other is US bond yields. However, he understands that the profit curve should not remain inverted for a long time because it does not encourage leaving money in banks because there are fewer benefits or profits for investors. What the markets expect, he says, is for that yield curve to normalize.
The Bloomberg Intelligence expert, however, is among those who consider that there are many things in the US economy that seem to “smell a little bad” given the fact that it is at the point of the cycle. In this order, he believes that the Federal Reserve has already done what it can do in terms of monetary policy.
Although he considers that a growth of 5% would be ideal, the 1.4% achieved by the Dominican economy as of July of this year is due to what is happening around the world. He relates the slowdown in growth to the effects of post-pandemic expansion and contraction measures.
He warns countries like the Dominican Republic to “respect some of the gravitational forces that surround the market.” He says this because in the past Turkey, Egypt, Nigeria and Ghana made some mistakes by opening their local markets too much to foreigners, since “when the party was over” they all left, leaving those economies in crisis and pressured by the need to look for the resources to pay.
However, what does give him confidence in the Dominican case is that this country does not depend on the rest of the world for its food and is less dependent on foreign energy, which does not happen, he says, in Egypt and other economies in that country. region, such as Nigeria or Turkey.
“The Dominican Republic is very different from that. You know, from an economic standpoint, it’s very resilient. “It has all the tools to do it economically,” said the financier.
Impact of the 2008 crisis
Regarding whether the United States learned its lesson with the 2008 financial crisis, Sassower believes that the monetary policy that Alan Greenspan had been implementing contributed to the fall of the markets. “Am I saying I could have prevented it? No. I’m just saying that yes, their policies contributed to it,” he said, while noting that the United States did not learn its lesson from that experience.
The expert, however, understands that the crisis left something positive: at least the signs can be identified in time if something is wrong. “Look, I think the answer has to be no. “There are a lot of good things that came out of the global financial crisis in the sense that, yes, we now have signs that we can identify that it could proceed to a systemic crisis,” he understands.
Traslated by Bloomberg.